Infrastructure must grow economy, not politicians’ wealth

South Africa’s ability to grow the economy, create jobs and reduce poverty is constrained by persistent under-investment in infrastructure and the propensity of the ANC government to use infrastructure programmes as an instrument for cronyism and corruption.

In the first four weeks of the jobs campaign, we examined how the DA plans to break down the barriers that prevent people from accessing economic opportunities by (i) improving quality, access and accountability in the education system, (ii) enhancing youth employment, (iii) creating an enabling environment for entrepreneurs and, (iv) opening South Africa for trade and investment.

Today the DA presents its plan on how to harness the potential of infrastructure to support economic growth and job creation.

Research unequivocally proves that infrastructure matters when a country wants to improve the capacity of its economy to lift people from poverty. A recent World Bank report shows that key infrastructure sectors, including telecoms, electricity, roads and water significantly affect GDP per capita. A recent study by the National Bureau for Economic Research (NBER) found that low and middle income countries that fail to invest in growth-enhancing infrastructure pay a growth penalty.
This is a penalty that the people of South Africa are paying every day.

The World Bank’s 2012 Ease of Doing Business Report, scores South Africa 124th out of 183 countries for ‘getting electricity’ – one of its top ten criteria for measuring the economy’s ability to attract entrepreneurial activity. It is easier to get electricity in Kenya, Mauritius, Botswana and Namibia than in South Africa.

South Africa scores 112th out of 142 economies in the World Economic Forum’s global competitiveness ratings for ‘Internet bandwidth (kb/s/per capita)’; 100th for fixed telephone lines/100 people; and 71st for mobile phone subscriptions/100 people. The quality of our roads ranks 43rd in the world; railroad infrastructure 46th; and port infrastructure 50th.

All this explains why the World Economic Forum identifies “inadequate supply of infrastructure” as one of the top six factors that make it difficult to do business  in South Africa.

During his State of the Nation Address in February, President Zuma placed significant emphasis on infrastructure, announcing a R330 billion infrastructure plan to be driven by the Presidential Infrastructure Coordinating Commission.

But, all too often, infrastructure projects do not end up doing what they are supposed to do. They tend to cost more than they should, take longer than anticipated and sometimes not at all — usually because of a crony deal that was the driving force behind them in the first place.

As Deputy President Kgalema Motlanthe famously said not so long ago:

“This rot is across the board. It’s not confined to any level or any area of the country. Almost every project is conceived because it offers opportunities for certain people to make money. A great deal of the ANC’s problems are occasioned by this.”

We continue to see examples of how the ANC as a government uses infrastructure expansion to line the pockets of the ANC as a political party and as a means to secure political support.

  • In 2007, Eskom awarded its largest contract ever to Hitachi Power Africa to build boilers at the Medupi and Kusile power stations. Reports at the time suggested that Chancellor House stood to make a profit close to R1 billion from the deal. The project now faces a 20-month and R60 billion overrun, yet no penalty clauses have been invoked to bring the politically connected service provider back in line.
  • Tri-partite alliance partner COSATU is estimated to have made a tidy R24 million profit through its investment in a construction company which benefitted from the Gauteng Freeway Improvement Project. The entire Gauteng E-tolling project has been mired in controversy, given the exorbitant costs that residents would incur.
  • More than R1 billion in public money has been allocated to build a new town just 3.2 km from President Jacob Zuma’s Nkandla homestead in KwaZulu-Natal in what the DA believes to be a very expensive public relations exercise by the President in the run-up to Mangaung.
  • In January, National Treasury had to intervene in Provincial Departments of Roads and Transport in both Limpopo and the Free State because irregular supply chain and procurement were found to be draining provincial resources.
  • It was reported in March 2010 that Julius Malema, former ANC Youth League leader, received tenders to build several multi-million rand bridges and roads in Limpopo. These bridges were washed away within weeks of their completion due to shoddy construction.
  • The Hawks are currently investigating corruption around the construction of the R1.2 billion Mbombela Stadium where there appears to have been involvement by a former municipal manager who has subsequently been dismissed with a R1.5 million golden handshake.

In Brazil, the potential for power abuse in large infrastructure projects is curbed through a model in which the state holds the minority share in state-owned enterprises (SOEs) driving infrastructure expansion. Private shareholders have enough say in the running of the erstwhile SOEs to prevent these entities from becoming vehicles for rent-seeking or patronage politics.

In the Western Cape, the DA government has adopted legislation to prevent officials from doing business with the provincial government. All attempts by the DA to push for similar legislation in other provinces and by the national government have been blocked by the ANC.

The DA has a number of policy proposals which are aimed at promoting private sector involvement in infrastructure expansion, curbing the potential for large-scale corruption related to large-scale projects and ensuring that South Africa’s infrastructure serves the needs of the economy.

These can be summarised as follows:

General proposals

  • Increase infrastructure investment to 10% of GDP.
  • Conduct a comprehensive review of the current state of South Africa’s independent infrastructure regulators. The review process will (i) clarify their respective roles; (ii) strengthen accountability; (iii) update relevant legislation and regulations; and (iv) make recommendations regarding institutional design reform.
  • Begin a process of rationalising South Africa’s portfolio of SOE’s.

Telecommunications infrastructure

  • Enter into private-public partnerships (PPPs) to expand and upgrade South Africa’s Information and Communications Technology (ICT) infrastructure, with a specific view to extending the availability, reach, and competitiveness of broadband internet. In the Western Cape, we are co-ordinating broadband roll-out with the private sector and aim to have 70% of government offices and every school in the province connected to broadband by 2014.

Electricity supply

  • The DA would decentralise power production by moving Eskom’s current system operator, planning, power procurement, power purchasing and power contracting functions to an independent system and market operator.
  • Resolving outstanding distribution problems by ring-fencing the electricity distribution businesses of the 12 largest municipalities, resolve maintenance and refurbishment backlogs and develop a financing plan, with a complimentary programme investing in human capital in the energy sector.
  • Developing a long-term coal policy and country investment strategy based on a thorough scientific assessment of South Africa’s coal reserves, the sustainable supply of domestic coal needs to power high rates of economic growth and rapid industrial development, and the sustainable expansion of coal export markets with the intention of gradually reducing carbon intensity in the long-term.

Water infrastructure

  • Rehabilitate existing water infrastructure, particularly at a local government level, to curb the current high loss of water in transmission.
  • Conduct a feasibility study for large-scale desalination plants to augment the water needs of large cities.

Transport infrastructure

  • Initiate a process of renewing the country’s entire freight rail fleet to expand capacity and enhance the efficiency, reliability and competitiveness of transporting goods around the country and to our trading partners abroad.
  • Develop an inter-SA business corridor using infrastructure investment to improve commercial connectivity between regions by upgrading the Durban-Gauteng freight corridor, and build a new port at the old Durban International Airport site. This will both stimulate commercial activity within South Africa and enhance our trade profile by better integrating the country’s primary economic hub (Gauteng) with the main port (Durban).
  • Increase the transport infrastructure budget: Increase budget allocations to the public transport network to better connect people with opportunities (for example, by extending Rapid Bus Transit systems) and increase spending on upgrading informal settlements.
  • Locally, we will expand the MyCiti bus network to link Mitchell’s Plain and Khayelitsha with the city centre by the end of 2013 to reduce car use and reduce carbon emissions in the city.

Infrastructure must be made to work for the economy and job creation, not for the benefit of politicians. We need the right infrastructure in place for roads to bring goods and services to the marketplace, modern and free ports to enable trade, and the power to switch the lights on. We need infrastructure to build a capable state, so that everyone can participate in a dynamic economy. This must be to the benefit of all South Africans, not a politically connected few.


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